... enthusiasts believed that the new BCH token will be distributed as “free money” when the Bitcoin Cash hard fork was introduced. ... For example, if a Bitcoin holder has 100 Bitcoins, then he will receive 100 Bitcoin Cash tokens.

Lost in the headlines over the SEC’s recent pronouncements on cryptocurrency was important practical advice for both promoters of and participants in initial coin offerings (ICOs).

Most coverage was rightfully garnered from the Report by the SEC’s enforcement division which deemed that DAO Tokens are securities, after subjecting the offering to the Howey test. However, the simultaneously issued Investor Bulletin should also be closely read by issuers of ICOs and their counsel.

Advice for Issuers and Counsel

Even though the bulletin was prepared as a cautionary statement to investors, it contains at least one disclaimer (in boldface type) that attorneys advising ICOs should add the following language to any offering document or white paper:

Investing in an ICO may limit your recovery in the event of fraud or theft. While you may have rights under the federal securities laws, your ability to recover may be significantly limited.

We have previously discussed the importance of these disclaimers and risk factors. By discussing the vulnerabilities of cryptocurrency exchanges and the potential difficulties associated with any recovery of invested or stolen funds, the SEC signals at least some of the risk factors counsel should consider adding to ICO offering materials.

In fact, prudent attorneys advising their ICO clients would be wise to employ the cut-and-paste function, adding the above caveat to all their documents.

This additional wording is significant in that it spells out three key characteristics of ICOs:

(i) the difficulty of tracing or securing virtual currency;

(ii) the international scope of ICOs; and

(iii) the fact that lack of any central authority may limit an investor’s remedies against an issuer.

Practical Advice for Investors

Besides the usual bromides about being wary of any offer that sounds “too good to be true,” the SEC demonstrated an appreciation for the unique due diligence required in carefully evaluating an ICO.

According to the bulletin, investors should “ask whether the blockchain is open and public, whether the code has been published, and whether there has been an independent cybersecurity audit.” The SEC is communicating that those factors are indicative of companies whose products are verifiably real and secure.

Given the importance the SEC placed on these three items, rather than await questions, such points should be clearly addressed by an issuer in its ICO materials distributed to potential investors. Issuers of ICOs should include those factors and other “good facts” that can help to demonstrate their product’s value, security and legitimacy.

While the recent flurry of documents emanating from the SEC likely has given issuers of ICOs and their counsel pause (and caused them to walk each token through the Howey test), it does not appear to have stifled these transactions.

However, where the report reiterates the conceptual framework under which any potential token offering be evaluated to determine whether it constitutes a securities offering, the bulletin provides practical advice, and investors should expect to see some of the SEC’s language repeated in ICO offering documents going forward.

This is a guest post by Gray Sasser and Joshua Rosenblatt. The views expressed do not necessarily reflect those of Bitcoin Magazine or BTC Media.

Bloq, a Chicago-based blockchain developer and software startup, has joined IBM and Microsoft to develop blockchain platforms and best practices for one of the most promising use cases for blockchain technology: trade finance and supply chain management.

Interest in the use of blockchain for trade is growing rapidly as companies and organizations like IBM, Microsoft, Hyperledger, JP Morgan and Walmart recognize that antiquated trade systems are long overdue for a complete restructuring and that blockchain technology has the potential to revolutionize the systems that make up global trade.

A common problem with current trade systems is fraud. The trip from farm or factory to store shelves involves numerous opportunities to falsify shipping documents and alter shipping container records or contents with little accountability.

"Global supply chain management has drastically changed in the last 10-15 years," William Nieusma, Vice President, Government Strategy at Bloq told Bitcoin Magazine: "Regulatory mandates, operational complexity and data security concerns have ramped up the pressure to overhaul these outdated systems.”

Nieusma is one of the authors of Bloq’s recently released white paper, “Accelerating Global Trade Processes with Blockchain,” designed to introduce their new project to develop a model blockchain network for companies involved in trade.

“But it's not all doom-and-gloom; adopters of blockchain-based systems can cut costs, improve customer service and find new, verified business partners," added Nieusma.

Alan Cohn, attorney and consultant and advisor to Bloq told us:

"Global trade is an area where blockchain can play a transformative role, not just for industry but also for government."

Nieusma noted that Bloq believes that in the future, the most significant and valuable business systems, including trade, will run on blockchains.

IBM has recognized the potential of blockchain and trade. In partnership with seven European banks, it is building a pilot blockchain trade program with Hyperledger to enable companies like Walmart and Maersk to use blockchain technology to better track the movement of farm and factory products to the store shelves.

Microsoft is also building a model trade program using the Ethereum blockchain in a pilot project with JPMorgan.

Blockchain Tech and Trade Are a Perfect Fit

Trade finance and supply management lend themselves well to the particular advantages of blockchain technology. The Bloq white paper states:

Bloq plans to build a “permissioned, federated network” built on the Bitcoin blockchain that, depending on the client’s needs, will also support Ethereum and Hyperledger. Nieusma said:

“Bloq believes that the future is a multi-chain, multi-network world and that interoperability is a guiding principle in network buildout.”

The Bloq program will connect all parties involved in a trade including buyers, banks, sellers and transporters so that information about a shipment is distributed among all involved parties at the same time.

As the white paper states:

“Trade can be safer, more secure, and more profitable with less human error. We hope this discussion leads to an evolution in trade that benefits all stakeholders.”

Following a week of bombshell developments in the industry, from the SEC classifying the DAO Tokens as securities to the arrest of Alexander Vinnik for allegedly laundering 4 billion dollars through BTC-E, the inaugural Blockstack Summit kicked off on the morning of July 27th with an eye toward innovative layered protocols that can exist on top of existing blockchains.

Hosted at the Computer Science Museum in Mountain View, CA, the conference began with a discussion of transitions between the “terminal model” of computing and the personal computer over the course of digital history. In their talk, Blockstack co-founders Muneeb Ali and Ryan Shea discussed how recent moves toward cloud computing and storage take away the data privacy and security guarantees long afforded by personal computing. In response to this problem, Blockstack and other decentralized applications built on top of various blockchains aim to give consumers the ability to control, manage and streamline their own digital lives.

Elizabeth Stark, co-founder and CEO of Lightning Network, then discussed recent technical developments that allow for both higher transaction volumes through specialized off-chain payment channels and transactions between two different types of cryptocurrencies. These developments are saving both parties transaction fees in the long run and helping alleviate some of the scaling issues that bitcoin and other currencies have been facing in recent years.

Bram Cohen, BitTorrent creator, took the stage later with Blockstack’s Ali to discuss developments in the space. When asked about the scaling debate and recent implementation of SegWit, Cohen drew chuckles from the crowd with an adamant declaration that “SegWit solved a bug that should have been solved when Bitcoin was created.”

Cohen also endorsed Bitcoin Core and shared his doubts regarding the technical competency of the teams behind some of the more recent ICOs of ERC20 tokens built on top of the Ethereum blockchain: "As a general rule, if you don't have the skills to build your own token from scratch, you shouldn't run an ICO.”

Nick Szabo, computer scientist and legal scholar, then discussed the origins of contract law, the historical implementation of smart contracts and the next steps the industry needs to take to implement smart contracts in a variety of commercial transactions, both between consumers and companies and between companies themselves.

Drawing on his studies at George Washington University Law School, Szabo advocated for the integration of smart contracts into traditional contract and property law frameworks. Instead of attempting to rebuild legal theory from scratch, developers should work with existing frameworks that have already been debugged for centuries.

Szabo explained a dichotomy of contract law: “dry code,” where an entire agreement can be interpreted and executed by computers based on a number of digital inputs; and “wet code,” or traditional law, where the agreements are interpreted by individual parties based on their own definitions of words and phrasing.

Many industries exist today to help quantify and define examples of “wet code” in the world. Insurance claim adjusters analyze accident reports and eyewitness testimony in order to correctly pay out claims based on fault and the monetary value of the actual damages suffered by each party, for example.

Translating poorly organized data from real-world situations into a series of executable actions based on the terms of an agreement is a valuable service. Rather than call for an abolishment of these systems, Szabo argued that the future of decentralized smart contracts will exist in tandem with the best parts of more traditional finance industries in the coming future. Over the coming years, larger portions of traditional data analysis will become obsolete, performed digitally by more powerful and intelligent computers.

Next, Balaji Srinivasan, founder of 21.co and a16z Board Partner, introduced the Nakamoto coefficient, a metric inspired by the Lorenz curve and Gini coefficient to quantify the relative decentralization of different types of cryptocurrencies. By looking at the distribution of power in six subsects of individual cryptocurrencies, Srinivasan was able to compare the relative strengths of different blockchains and networks against attacks that require a majority or supermajority of the power in a system to be compromised.

Srinivasan started by organizing the six essential subsystems of both Bitcoin and Ethereum:

mining, where power is equal to who receives mining rewards;

clients, where power is equal to the number of users;

developers, where power is relatively equal to the number of commits;

exchanges, where power is equal to trading volume;

nodes, where power is measured by the distribution of nodes around the world; and

coin ownership, where power is measured by how much coin each wallet address contains.

After calculating the amount of power owned by each entity in the six subsystems, Srinivasan was able to calculate a Gini coefficient (dubbed the “Nakamoto coefficient”) based on the relative power concentrations for each subsystem. For instance, if every miner has the same amount of hashpower and receives the same reward, the subsystem would receive a value of 0. If a single miner receives all of the rewards, then the subsystem would receive a value of 1.

Despite a myriad of differences, both Bitcoin and Ethereum have nearly identical Nakamoto coefficients of ≈0.91, indicating that at least one subsystem in each ecosystem is highly centralized. However, based on Srinivasan’s calculations, it’s clear that Bitcoin is either slightly (client, exchanges, nodes and owners) or drastically (mining and developers) more decentralized than Ethereum. Most surprisingly, Bitcoin’s mining network is far more decentralized than Ethereum’s (0.4 vs. 0.82).

This is the first time Srinivasan has discussed a metric for decentralization of cryptocurrency markets. He has since published his findings, with links to the underlying datasets, on his company’s blog.

After a panel discussing specific use cases for cryptocurrency payments, Wealth and Poverty author George Gilder led a rousing endorsement of a tokenized, decentralized web and its ability to destroy “silos” of the internet created both by countries and companies alike.

Citing the vast amounts of data companies like Facebook, Google and Amazon save and measure about their users’ digital lives, Gilder spoke of a future where individuals can explicitly control the flow of their data, secured by decentralized protocols and powered by tokens.

It was fitting that Blockstack Summit was held in the Computer History Museum, an ode to the stories and artifacts of the information age and its impact on society. With fully restored IBM mainframes, an Apple I and the source codes of dozens of impactful softwares like MS-DOS, Photoshop and Word, the museum served as a backdrop for discussions that look to an open, free and uncensored society of the future.

Digital currency exchange startup Coinbase is pushing back against a renewed court effort by the Internal Revenue Service to obtain information on some of its customers. Earlier this month, the IRS sought to narrow the scope of its investigation of the startup's customers after running into opposition from both Coinbase itself as well as several […]

Airbitz is one of the more popular mobile bitcoin wallets among those who believe in the digital asset’s core tenet of decentralization. Recently, Bitcoin Magazine caught up with Airbitz CEO Paul Puey to get his thoughts on preserving Bitcoin’s decentralization in a smartphone environment.

“Decentralization has always been a key goal of our wallet, but of course balanced with usability,” Puey told Bitcoin Magazine. “While we present a login interface that mirrors a centralized, hosted solution, our wallet can still function even if Airbitz servers are 100% down. This is a unique proposition that is non-existent in the cryptocurrency or legacy technology space.”

Recently, Airbitz have added two features that point to the bitcoin wallet’s commitment to a decentralized economy: LibertyX integration and the ability to point one’s mobile wallet to a specific full node. Puey discussed these two features with Bitcoin Magazine, in addition to what Airbitz will be working on in the future.

LibertyX Integration

Earlier this year, a LibertyX plugin was added to the Airbitz wallet. This allows Airbitz users to find stores where they can buy bitcoin for cash from within their mobile wallet.

LibertyX is a service that allows people to purchase bitcoin with cash from a local store. A map of participating stores is available on their website, and amounts of up to $1000 worth of bitcoin can be purchased at these locations per day.

When purchasing $200 worth of bitcoin or less from LibertyX, a verified phone number is all that is needed to make a purchase. Amounts above $200 require further ID verification.

LibertyX users are able to receive their bitcoin after giving a cashier cash and a code generated from the LibertyX app on their phone in some locations, while other stores require that the user enter a PIN code found on their receipt on the LibertyX app after making a cash payment.

When asked if Airbitz may eventually roll out an integration with some form of P2P bitcoin exchange in a manner similar to Mycelium’s Local Trader functionality, Puey responded, ”At this point, we will continue to promote our integration with LibertyX. We believe they provide a great user experience and price for those looking to acquire bitcoin for cash, and it requires significantly less engineering to implement than a local trader type feature.”

Point to Your Own Full Node

Another feature that was recently added to Airbitz is the ability to point the bitcoin wallet to a full node of a user’s choice. Puey explained the importance of this feature to Bitcoin Magazine.

“Bitcoin democratizes access to financial services, but part of that democratization is choice — choice [as to] what services you use and support. The ability to choose your own node gives users the choice to connect to a node that implements the protocol they prefer, helping them put their vote on how they would like to define the future of Bitcoin.”

If a bitcoin user is not operating their own full node, then they are trusting someone else to make sure the rules of the network are being properly followed. By allowing users to choose a specific full node, Airbitz is making sure their users can choose who they trust with the job of the enforcement of Bitcoin’s consensus rules. Of course, users can also point their Airbitz wallets to their own full nodes.

The ability to choose a full node is also important when it comes to hard forks, as those who are not operating their own full nodes do not get a say in potential changes to the protocol rules.

What Else Is on the Way?

For now, Airbitz is mostly focused on their Edge Login SDK, which allows their Edge Security platform to be used for applications other than Bitcoin.

“You'll see features and functionality really geared towards our Edge Login SDK and supporting our decentralized app partnerships like Augur and Wings,” said Puey. “We aim to significantly grow the list of partners utilizing Edge Login, and you'll soon see new functionality that will help drive that effort.”

Puey added that Airbitz will continue to focus on the aspects of decentralization that they believe will extract the biggest value out of bitcoin and cryptocurrency.

“The concepts of decentralized ownership of value, decentralized private key security, decentralized access to the blockchain, and even decentralized development of the core protocol have been well promoted and supported by Airbitz,” said Puey.

On tonight's episode of "The Crypto Show," our guests in studio include "Dances With Bitcoin" (a.k.a., Brian Deary, CSO of Factom) and Jimmy Song, veteran crypto developer with Paxos. We discuss the upcoming Bitcoin Cash hardfork, its history, and its diverse implications. We also briefly touch upon the Segwit2x fork coming in November. Complex but fascinating theoretical discussions about the future of Bitcoin.

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With only 3 days left before Bitcoin’s hardfork is implemented, there is still great uncertainty among BTC-USD markets (which inherently applies to all cryptocurrencies) and what their imminent fate will be. One would expect, with so much market uncertainty, that BTC-USD should be seeing dropping prices as people begin to sell their BTC in lieu of other fiat and crypto-assets. However, in a surprising turn of events, BTC-USD has managed to climb by over $300 within the past 24 hours. Because the speculations regarding the BTC hardfork vary wildly, this market analysis will look at the raw data presented on the markets and will not attempt to account for any of the hardforking ramifications.

The figure below shows two indications that the BTC-USD climb is due for a consolidation period and possibly some pullback in price:

Figure 1: BTC-USD, 2HR Candles, Bitfinex, Momentum Loss

The first that stands out with the current $300 rise is the decreasing volume throughout the length of this little bull run. Decreasing volume indicates the decrease in market interest in these higher values and typically leads to either a consolidation period or a pullback in price to garner support from lower values.

The second indicator that stands out is the 2HR MACD divergence shown in pink. Typically, for a healthy bull run to sustain its upward momentum, we would like to see the MACD making new highs on the histogram to accompany the new highs in market value. Looking closely, you can see the most recent high of approximately $2800 did not correspond to a new high on the MACD histogram. Thus, another indicator of market momentum loss reveals the increased likelihood of market price consolidation.

As always, it is important to put the current market trend within the context of the grand picture:

Figure 2: BTC-USD, 6HR Candles, Bitfinex, Hidden Bearish Divergence

Looking at the 6HR candles trend, there is a subtle hint of macro bearish divergence on the MACD. When the MACD signal line/moving average makes a new high, but the price trend does not make a new high, this can be an indication of bearish leaning momentum called “hidden bearish divergence.” In addition to the MACD hidden bearish divergence, we can see a severely decreased volume trend as we approach the highs made a couple weeks ago. In general, the upper $2000s seem to be a battleground that is starting fizzle out in a bearish fashion. This could be attributed to many factors, but ultimately I think the wild price swings can be easily explained by the great uncertainty in the market surrounding the August 1st hardfork.

With only 3 days left, speculators are getting situated in their positions. Until the hardfork is implemented, there is no telling what will happen to the BTC-USD markets or the cryptomarket as a whole. So, with all this uncertainty in the air, where can we expect to find levels of support in the event of a major crash on August 1st? The figure below shows the key support levels to look for on the macro scale:

Figure 3: BTC-USD, 12HR Candles, Bitfinex, Key Support Levels

Once again, the key support levels for the macro trend are found along the Fibonacci Retracement values of the entire bull run. Immediately below our current values lies very solid, historic support at $2500 values. A test of this support value will ultimately dictate the immediate future of the BTC-USD market.

On the run up to $2900 a couple weeks ago, a lot of volume went into the market to develop firm support. A breakdown of this support level could prove to be quite destructive to the BTC-USD market in the short term. The $2500 support level is clearly shown in the massive influx of volume and proves to be a severe point of market interest. To date, that is one of the strongest support levels BTC-USD has established, as indicated by the rise in volume around those prices.

Summary:

On the macro and micro levels, BTC-USD is showing indications of price consolidation in the near future.

Key support levels are found along the Fibonacci Retracement values. In particular, $2500 has proven its historical significance in the market and should be closely watched in the event of a bear run post-hardfork on August 1st.

Trading and investing in digital assets like bitcoin and ether is highly speculative and comes with many risks. This analysis is for informational purposes and should not be considered investment advice. Statements and financial information on Bitcoin Magazine and BTC Media related sites do not necessarily reflect the opinion of BTC Media and should not be construed as an endorsement or recommendation to buy, sell or hold. Past performance is not necessarily indicative of future results.

Digital currency practices have exploded in recent months, bringing to the forefront new regulations. This means VC investors looking to get a piece of the action need to do further due-diligence and remain informed on the legal side.

According to Inside Bitcoins, last year two Bitcoin and blockchain-related startups raised over $1 billion in total investment. This is a massive increase from the $347 million invested in the space in 2014.

So what are the latest issues around cryptocurrencies? How will the recent SEC announcement impact investors? Bob Graham, partner and head of the digital currency services practice at Friedman LLP, has been receiving inquiries from both Bitcoin and blockchain-related firms and investor funds asking for audits and advice.

Graham tells Bitcoin Magazine in an exclusive interview what VC investors should be aware of and how Bitfinex recently engaged Friedman to assist with an audit.

What issues are VCs facing related to digital currency?

There are several issues that VCs are facing when making investment decisions. Comparability of financial information between companies and industry trends are important factors that many investors use. There are a lot of startups in the digital currency industry, but some entities are becoming more mature and sophisticated, which brings more sophisticated investors.

Which accounting rules apply?

Currently under U.S. GAAP [generally accepted accounting procedure] rules, there are no specific accounting principles to address digital currencies, and therefore companies must interpret existing standards to determine which standard best applies by analogy to the transactions they are accounting for. This can result in divergence in practice and incomparability of financial information for investors looking to make an investment decision.

Another issue that many investors are facing is the lack of regulation and clarity. On the regulatory side this week we saw the SEC announce it would regulate the DAO. What is your view?

The SEC released their “Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934: The DAO,” which provided some clarification, in that the Commission determined that DAO Tokens are securities under the Securities Act of 1933. I have discussed this conclusion with members of the digital currency community, and the general consensus was that it was anticipated that the SEC would include tokens as considered securities under the Securities Act of 1933.

The SEC concluded that whether or not a particular transaction involves the offer and sale of a security will depend on the facts and circumstances, including the economic realities of the transaction. This is important, as the SEC is evaluating tokens on a case-by-case basis using the fact pattern outlined in the Report of Investigation into the DAO.

They provided some key considerations that companies and their consultants can evaluate in determining if tokens being offered would be considered a security under Securities Act of 1933.

There has been a significant influx of capital into digital currency companies during 2017 through token offerings, which vary significantly in structure. Some of the members of the community fear that regulation may slow innovation, but there is a delicate balance [between] innovation and investor protection. Some more sophisticated investors, including VCs, have been hesitant to enter the token-offering environment due to the lack of regulation.

We hear the phrase “Wild West” quite a lot when people refer to the cryptocurrency world. Could you expand on why you think a “Wild West” type scenario is being created?

One could say that the lack of regulation, relatively short timeframes and significant amount of capital being raised through token offerings could create a “Wild West” scenario when compared to a traditional route of an initial public offering. Companies looking to perform a token offering have to evaluate the structure of their offering and utilize lawyers and accounting firms that have experience in this industry in order to ensure they are appropriately protecting the investors, employees of the companies and the company itself.

With the SEC report discussed above, the SEC has put companies in this industry on notice that they are expected to follow the registration process with the Commission and take appropriate steps to comply with U.S. federal securities laws unless they are subject to exemption. It will be interesting to see how quickly the SEC proceeds in evaluating other token offerings that have been completed and any future token offerings; but they will be a key part of bringing regulation to the industry, which will hopefully improve investor confidence and allow digital currencies to become more mainstream investment vehicles.

Can you tell us more about the theft and compromised-exchanges issue facing the space? How could those types of issues have been avoided? Will the environment become safer?

I think that the environment will become safer as the digital currency markets continue to mature … The U.S. Department of Justice unsealed an indictment imposing a $110 million fine on the Bitcoin exchange BTC-e for violating anti-money laundering laws. This is important as BTC-e is not domiciled in the U.S., and shows that U.S. regulators are willing to pursue action across borders. There is also an ongoing IRS investigation of the digital currency exchange Coinbase, which is domiciled in San Francisco, regarding tax reporting for digital currency transactions and customer records.

As exchanges continue to mature and subject themselves to additional checks and balances, whether through an audit of the financial information or an audit of their internal controls and processes, they will continue to develop better systems and processes which will hopefully promote a safer environment. These exchanges will continue to be the targets of theft due to the considerable value of their customer accounts and the digital nature of the transactions, but with continued development and more defined and tested processes the potential for loss will hopefully be reduced.

Keep in mind that no matter how sound an environment there is, there will always be a possibility of theft or other targeted attacks, but that isn’t something unique to the digital currency industry as it occurs often in other industries as well.

What role has Friedman LLP played in helping Bitfinex following the recent theft of more than $65 million worth of bitcoins from its exchange?

Unfortunately, I can’t go into a lot of detail about client accounts outside of what is public knowledge regarding the press release. I can say that as far as we are aware, there [are] many exchanges that are currently audited and I think it is great that Bitfinex is taking the time and effort to engage an auditor and open their books and records to external examination in order to encourage investor and customer confidence.